Ten principles of sound tax policy

The Tax Foundation’s Ten principles of sound tax policy are a must-read for those influencing tax policy. I think the list can be further refined down to about half that, but maybe they wanted to get an even ten.

For instance, maintaining the neutrality of the system (#2) will result in broad bases (#3). It’s when the system gets less neutral (i.e. favours certain groups or behaviours) that the base is narrowed. Various special interest deductions put in place to encourage desirable behaviour or punish undesirable behaviour have narrowed the base and caused rates to be kept high unnecessarily.

Harmonization of federal, state/province and local/municipal taxes (#10) is part and parcel with creating a simple tax system (#4). The provincial government has been criticized recently about its reluctance to harmonize Ontario’s sales tax with the Federal GST. The premier’s misguided reasoning for the reluctance? It would place a tax on certain exempt items, thus eliminating some of the complexity and non-neutrality in the tax.

Tax stability (#5) is important because it makes them predictable, which is also aided when there is no retroactivity (#6). When politicians can make changes to taxes retroactive, tax is not predictable. The Canadian government announced recently the retroactive increase in the Basic Personal tax credit. You’re unlikely to hear anyone complain about this, but nonetheless it isn’t ideal tax policy.

Transparency (#1) is important no matter what government initiative we’re talking about, and an open process (#9) is one manifestation of this requirement. All the workings of a democratic government must be open to its citizens and open to criticism and debate. Tax is no different from anything else in this respect.

So I humbly put forward my own principles of sound tax policy: simplicity, neutrality, transparency, and predictability. I think that basically covers it at a more abstract level than the Tax Foundation’s ten.


Simpler corporate income tax filing requirements

An agreement reached between the Canadian Federal government and the provincial Ontario government will simplify corporate taxes by 2009. The Ontario tax return, known as the CT23, will be amalgamated with the Federal return.

Ontario Finance Minister Greg Sorbara had this on the much-lauded move:

“Businesses have been asking us to reduce administrative overlap and duplication,” the Ontario treasurer said. “When governments work together, we can improve efficiency and help businesses free up resources that they can then invest in creating jobs.”

There’s no doubt this is a great move to simplify taxes in Canada – it leaves Alberta and Quebec as the only remaining provinces that require separate returns.

I’m not sure how much this is going to save businesses, however, since the only major difference between the information on an Ontario return compared to a federal one is with capital tax. I suppose that’s why the savings is only $100-million for all business in Ontario.

I hope this means only one Notice of Assessment to deal with, and a single toll-free number to call and get instalment amounts and other details.

But it will certainly allow the government(s), if they can manage it, to slim down and make operations more efficient on that side. I like to think we’re all winners when government improves.


Accounting change results in magic surplus for Ontario government

Sometimes when I’m looking for inspiration for a blog post I’ll scan the news sites for mentions of accounting, in the hopes that there’ll be some new development I can write about. Unfortunately, in accounting, new developments aren’t frequent and usually are pretty boring. It’s the nature of the beast.

So when I found this story in the Toronto Star about how the provincial government was able to “create” a surplus this fiscal year by adjusting some of their accounting, I knew this juicy little nugget was gold.

The province also attributed the abrupt fiscal turnaround to higher-than-expected tax revenues and expenses that were lower than projected because of the new accounting procedures.

Expenses in health care were $681-million lower than planned because of the accounting changes, even though spending on health increased seven per cent year over year.

The province came in with a modest $298-million surplus, so the loss without the accounting change details above would’ve been $383-million. The government’s original budgeted deficit was $2.8-billion.

So it seems the always unexpected increase in tax revenues of approximately $2.4-billion caused the sharp fiscal improvement. The comparatively smaller accounting change nudged Ontario into the black.

I guess once they got that close to a surplus they needed something to push them over the edge, since overall it was an immaterial change. The political victory was too sweet to pass up.


Bank of Canada chief pushes smarter provincial sales tax

David Dodge, the governor of the Bank of Canada and the current architect of our monetary policy, suggested the province of Ontario should revamp the provincial sales tax (PST) to more closely resemble the value-added federal GST in a rare appearance before the Commons industry committee.

The suggestion is a solid one, as it would allow producers some relief from their tax burden and still tax ultimate consumption by end users. The GST is an interesting tax in that producers deduct the GST they pay on inputs from the GST they collect on outputs, hence they are only taxed on the value they add to their product. Turning Ontario’s 8% PST into a value-added tax would help producers compete in the global economy.


Mapping out my clients after a year in public practice

I have been playing around with Windows Live Local lately, Microsoft’s competition for Google Maps.

GTA map of audit clientsI decided to map all the clients where I’ve been in the last year with my firm. For the blue ones I just had to search for the business name, but the red ones represent clients that I had to manually search for their address and add them because they didn’t show up in a business name search for whatever reason.

I thought it was pretty interesting to see it all laid out there. One client in Waterloo, an inventory count at a location in Guelph, a client in Burlington, one in Brampton, Pickering and Vaughan, a few downtown Toronto, the rest in Mississauga, Etobicoke and North York.